Correlation Between Pearson PLC and Lincoln Educational

Can any of the company-specific risk be diversified away by investing in both Pearson PLC and Lincoln Educational at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Pearson PLC and Lincoln Educational into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pearson PLC ADR and Lincoln Educational Services, you can compare the effects of market volatilities on Pearson PLC and Lincoln Educational and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Pearson PLC with a short position of Lincoln Educational. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pearson PLC and Lincoln Educational.

Diversification Opportunities for Pearson PLC and Lincoln Educational

0.72

Correlation Coefficient

Pearson PLC  Lincoln Educational

Poor diversification

The 3 months correlation between Pearson and Lincoln is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and Lincoln Educational Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Educational and Pearson PLC is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Pearson PLC ADR are associated (or correlated) with Lincoln Educational. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Educational has no effect on the direction of Pearson PLC i.e., Pearson PLC and Lincoln Educational go up and down completely randomly.

Pair Corralation between Pearson PLC and Lincoln Educational

Considering the 90-day investment horizon Pearson PLC is expected to generate 3.53 times less return on investment than Lincoln Educational. But when comparing it to its historical volatility, Pearson PLC ADR is 2.27 times less risky than Lincoln Educational. It trades about 0.01 of its potential returns per unit of risk. Lincoln Educational Services is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,581  in Lincoln Educational Services on December 29, 2024 and sell it today you would earn a total of  19.00  from holding Lincoln Educational Services or generate 1.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Pearson PLC ADR  vs.  Lincoln Educational Services

Pearson PLC ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Pearson PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Lincoln Educational

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Educational Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Lincoln Educational is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Pearson PLC and Lincoln Educational

The main advantage of trading using opposite Pearson PLC and Lincoln Educational positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pearson PLC position performs unexpectedly, Lincoln Educational can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Lincoln Educational will offset losses from the drop in Lincoln Educational's long position.

The idea behind Pearson PLC ADR and Lincoln Educational Services pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.